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Taking a lump sum from a pension

(16 Posts)
alreadytaken Wed 22-May-13 08:00:28

would you do this if you had the option and you had no debts to pay off? Annuity rates are pretty bad now so isn't it better to take the cash and have more control over the money? An annuity can always be acquired later if required.

We are reluctant to go to an IFA for advice as the last time we did that their advice was an expensive mistake.

Lonecatwithkitten Wed 22-May-13 14:00:08

What life stage are you at?
If you are not currently retiring or retired it is quite likely that you won't have to buy an annuity. So you could look at a SIPP as a way of investing in other things to provide an income in retirement.

AMumInScotland Wed 22-May-13 14:06:13

Are you about to retire and buy an annuity? If so, I guess it depends if you are confident you can get a better return on your money by making investments yourself. But that will be more risky than the annuity.

If you are not at the stage of buying the annuity now, then the thing you need to compare with is the interest rates you are getting on your "pension pot" and whether you think you can do better.

alreadytaken Wed 22-May-13 16:26:57

about to retire. Having looked at annuity rates you don't have to be brilliant at investment, the point at which you'd recover the amount given up is something like 25-30 years. That assumes that if inflation rates/ interest rates are as they are now. If inflation increase interest rates would probably rise too and even if the gap widens you still don't break even for 20+ years.

Notmadeofrib Wed 22-May-13 20:32:20

How much is in the pot?

I write this on the assumption you are talking about a personal pension.

The lump sum is tax free, so even if you need the income you would take it. Timing is the issue here. If you don't need it, could it remain invested? Furthermore you don't HAVE to buy an annuity, but you might struggle with a small pot to do anything else (very small though and it could be released under triviality rules). It's the size of the pot that will sort of push you one way or another.

The lump sum is a way of accessing some of the money that is otherwise locked up with quite a few restrictions on it (the tax incentive for pensions is one of the ways of compensating people for those restrictions). If you need an income you can invest the lump sum in other ways, but again size matters as like it or not there are charges one way or another.

alreadytaken Wed 22-May-13 22:41:49

enough for a decent deposit on a buy to let property perhaps, so not trivial.

Notmadeofrib Thu 23-May-13 10:31:39

That's a piece of string answer and doesn't give me any basis on which to give you worthwhile advice. Decisions now will impact on the rest of your life. I'm not going to beg for information to help you!

Viviennemary Fri 24-May-13 13:14:04

I agree that it is impossible to advise without knowing your position and if you need income at the present time. If you are still earning or have other income then of course whatever pension you get from the annuity will be taxed. I'd be inclined to take the lump sum but you probably need expert advice.

alreadytaken Fri 24-May-13 13:21:15

Income from either an annuity or the invested lump sum will be taxed. We don't need the income now. Thank you for the comments anyway.

MisForMumNotMaid Fri 24-May-13 13:24:59

If you stick it in a coupe of stocks and shares ISA's (over several years if necessary) the income can stay within the tax haven that is an ISA.

alreadytaken Sat 25-May-13 09:43:17

MisForMumNotMaid might do that but it would have to be over several years, hence thinking of buy to let as an alternative.

MisForMumNotMaid Sat 25-May-13 15:16:44

pensions advisory service its free independant advice.

Notmadeofrib Tue 28-May-13 17:26:58

The Pensions advisory service (TPAS) is free information - there is a vast difference!

For what it's worth an annuity purchased via a PCLS is a different product to an annuity purchased via a pension and the tax is actually very different...

MisForMumNotMaid Tue 28-May-13 17:54:25

They have sessions where you can post questions and get live answers. Thats advice not information isn't it?

Notmadeofrib Tue 28-May-13 19:11:17

Advice is advising you what to do i.e a recommended course of action.

An answer to a question you ask is just information that is specific to you. This may help you to make your own more informed choice, but it doesn't mean that it will help you uncover areas that you have not thought to question, perhaps because you are not aware of an issue.

I'm not trying to split hairs - honest - but TPAS will only answer what you ask, they will not pose possibilities, nor would they help assess relative risk or balance a course of action to your specific circumstances. They are good though for rules & regs and answering 'can I do X' type questions.
I think the OP appears somewhat confused about what can and can’t be done so they would certainly have a role in clearing up the confusion.

MisForMumNotMaid Tue 28-May-13 19:13:32

Fair enough. You're right its the facts you don't have 'the posing of possibilities' thats the most valuable advice.

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